ArcBest Corporation — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports unaudited fourth-quarter results. ArcBest is a transportation and logistics company, with asset-based ABF Freight and four asset-light logistics segments.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $2.667 billion | $2.613 billion |
| Operating income | $75.5 million | $69.2 million |
| Operating margin | 2.8% | 2.6% |
| Net income | $44.9 million | $46.2 million |
| Diluted EPS | $1.67 | $1.69 |
| Operating cash flow | $146.0 million | $143.8 million |
| Cash and short-term investments, unrestricted | $226.6 million | $203.0 million |
| Total debt, including current portion | $212.5 million | $127.7 million |
Revenue grew 2.1%, while operating income rose 9.0%; net income and diluted EPS declined. The effective tax rate increased to 38.3% from 34.6%. Management attributed the net-income decrease mainly to substantially lower income from life-insurance proceeds and changes in cash surrender value, and the higher tax rate. FY2015 Adjusted EBITDA was $185.6 million, up 5.3%; this is a non-GAAP measure.
FY2015 capital expenditures, net of asset-sale proceeds, were $71.8 million; an additional $80.6 million of equipment purchases were financed with notes payable. Debt comprised $70.0 million under the revolving credit facility, $35.0 million under receivables securitization, $106.7 million of notes payable, and $0.8 million of capital leases. The company reported $44.9 million available under the securitization program at year-end. It was in compliance with financing covenants.
Material changes and fourth-quarter results
- Asset-light segment revenue increased 10.5% to $798.1 million and represented about 29% of revenue before other revenues and eliminations, versus 27% in 2014. ABF Logistics growth included the Smart Lines and Bear acquisitions.
- ABF Freight revenue fell 0.6%; daily tonnage declined 1.5%, while billed revenue per hundredweight, including fuel surcharges, increased 0.8%. Its operating income rose to $62.4 million from $50.1 million, and its operating ratio improved to 96.7% from 97.4%.
- Fourth-quarter revenue was $648.1 million versus $664.8 million; operating income was $7.3 million versus $18.0 million; net income was $5.0 million versus $14.5 million; diluted EPS was $0.19 versus $0.53.
- Asset-light results were mixed: Panther operating income declined to $10.8 million from $15.6 million for the year, while ABF Logistics and ABF Moving improved. FleetNet operating income was approximately flat.
Outlook, commentary, risks and unusual items
- Management estimated 2016 net capital expenditures of $170–$200 million, including about $95 million for revenue equipment and $45 million for real estate projects, including a new headquarters and call center. Estimated 2016 depreciation and amortization was $100–$110 million. Spending could be adjusted to business levels.
- Quarter-to-date through late February 2016, ABF Freight billed revenue per day was about 1% below the prior-year period, as a roughly 1%–1.5% tonnage increase was more than offset by a roughly 2.5% decrease in billed revenue per hundredweight, including lower fuel surcharges. Management cautioned that future operating improvement and pricing trends were uncertain.
- Management expected approximately $1.0 million per quarter of nonunion pension settlement expense in 2016 and enterprise-solutions costs averaging about $1.0 million per quarter above 2015 levels. The company expected no required minimum contribution to its nonunion defined-benefit pension plan in 2016, based on currently available actuarial information.
- Multiemployer pensions are a significant exposure: about 64% of ABF Freight’s contributions went to plans in critical status; roughly half went to the Central States plan, reported 47.9% funded. Central States had sought approval for a pension rescue plan with benefit reductions; the filing says such reductions would not lower ABF Freight’s current contractual contribution rates. A small contribution also went to the Road Carriers Local 707 plan, which issued a notice of insolvency.
- Other key risks include union labor costs and the contract expiring March 31, 2018; freight demand and competitive pricing; fuel-surcharge timing and recovery; driver and third-party carrier availability; self-insurance claims; cybersecurity and IT disruption; and acquisition integration.
- The Brooklyn, New York Clean Water Act case remained unresolved, with no liability recorded and potential loss not estimable. A separate Washington stormwater matter was resolved for less than $0.2 million. Routine legal matters were not expected to materially affect results. The auditor gave unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Whether ABF Freight can sustain or improve its operating ratio amid weaker tonnage, labor productivity pressures, and contractual cost increases.
- Funding developments and potential employer-cost consequences at Central States and other multiemployer pension plans, including the status of the proposed rescue plan.
- Whether the 2016 capital program and acquisitions generate expected operating returns, while monitoring debt and remaining borrowing capacity.
- Progress and potential exposure in the Brooklyn environmental litigation, and the adequacy of self-insurance and claims reserves.
- Whether asset-light revenue growth translates into stronger operating profit, particularly at Panther and after the Smart Lines and Bear acquisitions.